Last Updated on 9 January 2021 by F.R.Costa

A long-short portfolio is a good strategy to protect for the downside. Article originally published at Master Investor Magazine November 2020 Issue 68.

There are so many ifs at this point that it pays to be safe rather than sorry. But, apart from selling stock holdings, there’s not much that can be done. Bond yields are just too low and enter the bandwagon of those fools buying at a high price just waiting for greater fools to later buy from them at even greater prices, may not be wise. But, long-short ETFs may offer a good alternative.

From the perspective of an individual investor, it is difficult to build a long/short portfolio. There are many restrictions on short selling and the proceeds from selling short are not always deposited in the client’s account as cash to purchase other stocks. For such a purpose, ETFs are a much better option than any individual attempt at building a portfolio stock by stock.

…if we accept the fact that investing isn’t about positive returns but much more about outperforming the broad market, then we can find value in opposing factors, stocks, industries, or themes. That’s the case of Value against Growth, GM against Tesla and good ESG companies against bad ESG companies.

About F.R.Costa

Filipe has more than 20 years experience with financial markets. He holds a degree in Economics with a specialisation in Finance and he's currently finishing a PhD in Finance. He used to work as financial consultant and research associate but then decided to return to academia five years ago. Since that, he has been an Invited Lecturer, teaching courses on Investments, Financial Markets, and Monetary Economics. He is also a regular contributor writer at The Master Investor Magazine.

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